Ergen's Bid Bets on Consumers Hungry for Data

By

Anton Troianovski and

Shalini Ramachandran

April 15, 2013 6:58 p.m. ET

People are guzzling wireless data and spending more on their phone bills. That has helped turn
Sprint Nextel
Corp.
, seen as the poor stepchild of the U.S. wireless industry just two years ago, into a hot acquisition target.

The looming takeover fight for Sprint between
Softbank
Corp.
of Japan, which agreed to buy 70% of the company for $20.1 billion last year, and
Dish Network
Corp.
, which lobbed in an unsolicited $25.5 billion offer for the whole company on Monday, reflects the fast-changing habits of Americans in how they consume media and what they spend on telecommunications.

Sunday night, when Dish Network Chairman
Charles Ergen
and his colleagues were in New York preparing to announce their Sprint offer, they were also using their mobile devices to watch the Masters golf tournament.

Mr. Ergen spent much of a later interview with The Wall Street Journal maintaining that more people in the future will want to do the same—and that Dish, by buying Sprint, would put itself in position to profit from those changed habits.

Pairing his satellite broadcaster with a nationwide wireless service like Sprint's would allow him to offer wireless Internet service that people can use in their homes, thanks to Sprint's cellular network, along with a more comprehensive mobile-video service that he said would let Dish subscribers get live TV beamed to their phones cheaply.

There is also a large portion of Americans—as much as a third, Mr. Ergen estimated—who in the future will find it more efficient to get their home Internet over a wireless connection than through a wired one because they won't have access to superfast fiber-optic wired networks. For those people, Mr. Ergen said in the interview, a combined Dish-Sprint could beam Internet service from towers to special cellular antennas mounted on the roofs of people's homes.

Mobile video is expensive now because it uses a lot of bandwidth, and most big wireless carriers charge for bandwidth on a usage basis.

Consumers have shown they are willing to pay up as America's mobile addiction grows. From 2007 to 2011, average annual household spending on telephone services increased by $116 to $1,226.

Mr. Ergen thinks he can capitalize on further increases in demand. He said live video could be transmitted far more efficiently over a special band of airwaves Dish controls. That way a combined Dish-Sprint wouldn't have to impose data caps on that video service, he said.

Mr. Ergen's comments about his offer for Sprint show he is making a bet that telecommunications providers will have a greater role in people's lives than simply being the "dumb pipe" that transmits data traffic on behalf of other companies.

"We can offer a much, much more compelling product that differentiates away from things like data caps and bits and bytes," Mr. Ergen said.

For his video plan to work, though, Mr. Ergen would likely need the programmers who control rights to mobile use of their shows to sign off. While Dish executives have said they have sewn up some of those rights, Dish's relationships with media partners are among the most contentious of any major TV distributor.

He is currently involved in a legal dispute with major broadcasters, over his Ad Hopper digital video recorder, which makes it very easy for TV viewers to skip commercials. (Among broadcasters suing Dish is Fox, whose parent company,
News Corp
.
, also owns The Wall Street Journal).

And Dish only recently settled a yearslong legal fight with
Cablevision Systems
Corp.
and sibling company
AMC Networks
,
which had involved a blackout of AMC's channels on Dish's service for several months last year.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.